Don’t buy the hype. Wealthy, big corporations do pay their fair share of taxes | Opinion
Congress is gearing up to pass a massive tax increase to partially pay for its $3.5 trillion budget blueprint. These tax increases will be aimed at the wealthy and at large corporations, justified as making these parties “pay their fair share.”
Like beauty, tax fairness is in the eye of the beholder. But new facts suggest there is little proof that the rich and big corporations are dodging the tax man.
Over the past few decades, Congress has aimed so much tax relief at low- and middle-income households that the largest share of taxpayers paying income taxes are now upper-income families and individuals. A recent report by the Tax Policy Center (TPC) found that almost 61% of Americans paid no income taxes in 2020, thanks largely to the substantial tax cuts enacted in various COVID-19 relief bills and the drop in personal incomes during the pandemic.
This is the largest number of nonpayers since the income tax was expanded to all workers during World War II.
While 2020 certainly was an anomaly, TPC estimates that the number of nonpayers is expected to top 57% this year, and continue to hover around 45%, should many of the temporarily expanded tax credits, such as the Child Tax Credit, be made permanent. TPC’s detailed estimates for 2022 show that roughly 94% of these nonpayers will earn less than $98,200.
By contrast, the latest data from the Congressional Budget Office shows that in 2018, the year after the Tax Cuts and Jobs Act (TCJA) lowered taxes for every income group, the share of income taxes paid by the top 1% of taxpayers reached a near-record high of 41.7%. The same group paid almost 26% of all federal taxes, twice the share paid by the bottom 60% of Americans combined.
So, if those at the top are paying the bulk sum of federal income taxes, surely corporations are the tax dodgers, right? Here, too, those pushing for these tax hikes are overlooking the data
The White House has perpetuated a narrative that big corporations are avoiding U.S. taxes by shifting profits overseas. But a recent analysis by Tax Notes economist Martin A. Sullivan found that large tech firms moved $40 billion of worldwide profits to the United States in 2020, belying the rhetoric that they are shifting profits abroad. Sullivan found that publicly traded multinationals overall have steadily increased the domestic share of their worldwide profits from 48% in 2017 to 56% in 2020.
Tax fairness is defined differently by almost every economist and tax writer, but if the goal is to make sure the tax code doesn’t play favorites toward the top 1% or corporations, there are easy steps Congress could take.
Lawmakers could begin by repealing a policy that favors the wealthy: the state and local tax deduction — SALT. Even at its $10,000 cap, the SALT deduction mostly benefits upper-income suburbanites. Eliminating it could raise more than $1.5 trillion over 10 years.
Another way would be to broaden the corporate tax base by repealing most business tax deductions (while retaining economically beneficial deductions for capital investments). While not all of these deductions would be considered loopholes, eliminating them would have minimal economic impact while raising almost $1 trillion over a decade.
One quote attributed to Mark Twain said, “Never let the truth get in the way of a good story.” Politicians need to create plausible narratives to generate public support for tax hikes—even if the facts don’t match the story. And many policymakers have repeatedly told Americans that the wealthy and big corporations don’t pay their fair share of taxes, so we tend to believe it. The facts don’t support this claim, and they shouldn’t be ignored as Congress tries to make a progressive tax code even more progressive.
Scott A. Hodge is president of the Tax Foundation, a nonpartisan tax-research group in Washington, D.C.